Ind-Ra downgrades outlook on steel sector

The rating agency has revised downwards steel demand growth outlook for the current fiscal.

PTI|

Sep 04, 2019, 07.12 PM IST

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New Delhi: India Ratings and Research (Ind-Ra) on Wednesday said that it has revised its outlook on the steel sector to 'stable-to-negative' due to expectations of tepid demand in steel sector.

In view of the slowing global growth and continuing trade frictions, the rating agency has revised downwards steel demand growth outlook for the current fiscal.

Ind-Ra has revised downwards its fiscal 2019-20 steel demand growth expectations to around 4 per cent from the previous forecast of 7 per cent.

"Ind-Ra has revised its outlook on the steel sector...for the remainder of fiscal year 2019-20 given sluggish steel demand growth expectations owing to mix of structural and cyclical concerns in end-user sectors, primarily auto and real estate construction," the rating agency said in a statement.

The outlook also factors in increased import risks especially from free trade agreement countries including Japan and South Korea due to adverse domino impact of the slowing global growth and continuing trade frictions.

Furthermore, raw material availability and price risks may escalate in the fourth quarter of ongoing fiscal if the uncertainty over iron ore mine auctions prolongs, it said.

It expects overall steel sales volumes and margins to weaken further in second quarter of 2019-20 after industry witnessed margin correction in fourth quarter of 2018-19 and first quarter of fiscal year 20, Ind-Ra said.

Steel prices have been continuously softening while raw material cost prices have only seen partial declines, thereby squeezing the gross spreads for steel producers.

However, Ind-Ra said it expects steel demand to recover in second half of 2019-20, supported by pick-up in government investments, fiscal stimulus measures and improvement in market sentiment.